Ethereum is a cryptocurrency inspired by bitcoin that has grown in popularity as an alternative to it. It was proposed in 2013 by Vitalik Buterin, a renowned Russian-Canadian blockchain developer. Development of the cryptocurrency began in 2014 following a crowdsale, and the system went live in 2015.
One of the goals of Ethereum, and a key feature that separates it from bitcoin, is to allow decentralized applications and “smart contracts” to be built on top of it. Decentralized applications allow users to share and use programs that are not controlled by a single entity or organization. Smart contracts are self-executing contracts that do not require trusted third-party intervention once the criteria of the parties in a transaction are met. However, due to the goals to make the Ethereum blockchain a foundation for the development of new applications, the project is more centralized than bitcoin and under the control of a group of programmers to ensure its scalability.
The token used within the Ethereum network is called the “ether” (abbreviated ETH), which is traded among users and used to reward users for completing tasks. Similar to bitcoin, the Ethereum blockchain is a public ledger where all transactions are posted and able to be seen by the public. Likewise, smart contracts built on top of the blockchain are posted publicly. While bitcoin has a theoretical maximum of 21 million units, Ethereum has no such limit, though the inflation rate based on the network’s programming is expected to eventually level out so that as much ether is produced as is consumed annually, with a period of deflation possible. However, future modifications of the software in the future may alter the inflation rate, ideally to zero.
As of December 26, 2017, the market capitalization of Ethereum is over $74 billion, placing it second among cryptocurrencies behind bitcoin. Because of Ethereum’s enhanced capabilities compared to bitcoin, some investors and cryptocurrency experts view it as possibly exceeding bitcoin in market capitalization at some point in the future.
In June 2016, The DAO, a “decentralized autonomous network” and venture capital fund, was hacked, causing about $50 million of ether to be stolen. Fortunately, the contract required a 28-day holding period in a separate account before the ether could be taken due to the hack. Following intense debate within the community, it was decided that Ethereum should be “hard-forked,” thus returning the funds to their rightful investors. A hard-fork is essentially a significant change in the software that causes incompatibility between the new and old software. This hard-fork brought about the creation of two separate cryptocurrencies: Ethereum Classic (the original) and Ethereum (the new). After a hard-fork, owners of the original cryptocurrency are issued both the original and new tokens.
Despite the concerns about the hard-fork undermining confidence in the cryptocurrency, Ethereum has emerged more popular the ever and as a serious contender to potentially overtake bitcoin in the future. It is Ethereum’s resilience in the face of challenges such as the 2016 hack that have impressed investors and users of the cryptocurrency.